Global Economics

Europe Falls Short in Higher Education

U.S. and British universities consistently win kudos, and that could spell trouble for the Continent's competitiveness

Europe is renowned for taking good care of its citizens. Universal health care, a generous safety net for the unemployed, and free education from preschool through graduate studies—all are widely available in the Old World, thanks to a long tradition of social protection.

But one area where Europe falls short is higher education. Rankings of the world's top universities are consistently dominated by U.S. institutions. Indeed, in the 2007 edition of a respected annual survey by Shanghai Jiao Tong University, the U.S. took 8 of the top 10 slots—the same number as last year. U.S. schools also grabbed 7 of the top 10 positions in a recent ranking by the Times of London Higher Education Supplement in Britain. In both surveys, the only European universities to make the top 10 were British, including Oxford and Cambridge.

Great universities are more than a matter of national pride. "There is a direct link between universities' research performance and [a country's] ability to perform in a knowledge-based economy," the Brussels-based think tank Bruegel says in a recent report that calls for reform of Europe's universities. "If you do not invest in higher education and research, you do not allow your economy to contribute to, and benefit from, leading-edge innovation and hence higher growth," the report says.

More Investment and Autonomy Are Needed

Lack of financing is a key weakness. Public and private spending on higher education in the European Union amounts to only 1.3% of the EU economy—an average $12,000 per student. That compares with 3.3% of gross domestic product in the U.S., or $50,000 per student.

The Bruegel report calls for European countries to invest an additional 1% of their economies in higher education. But the report cautions that distribution of the money should be based on performance, not egalitarianism.

To foster excellence, Europe's universities should be given more autonomy and incentives for better performance—and they should be rewarded financially when they excel, says André Sapir, an author of the report. "There needs to be more performance evaluation," Sapir says. "Differentiation is key."

Oxford and Cambridge Can Raise Private Funds

Indeed, one reason for Britain's strong showing in international rankings is that top schools such as Cambridge and Oxford receive a disproportionately large share of national education spending. They're also able to charge higher tuition and raise private endowment funds.

By contrast, universities in France and Germany are almost 100% state-financed, and the money is spread around fairly evenly. French President Nicolas Sarkozy recently proposed a plan to give universities greater budgetary autonomy, including the possibility to charge additional tuition—but had to shelve it in the face of stiff opposition.

Despite such obstacles, Europe still boasts many world-class universities—including 34 of the top 100 ranked by Shanghai Jiao Tong University—with outstanding programs in everything from literature to biomedical research. And for all of its booming economic prowess, the Asia Pacific region produced only 8 schools in the top 100—all in Japan or Australia—with the top-ranked, Tokyo University, coming in at No. 20.

European leaders are aware of the global race for brainpower, and educational reform is already under way in some countries. Sweden, for example, has given universities more flexibility to award merit-based raises, rather than using civil-service pay scales common elsewhere. That could help explain why Sweden, with a population of only 9 million, has two among the top 20 European universities in the Shanghai ranking.